Stocks to Avoid Now?

Sometimes insiders are selling for all the right reasons.

If you're thinking of selling your stocks, you're not alone. According to insider tracker Form 4 Oracle, executives at these three companies cashed in shares last week:

The week's selling

Company

Closing Price 4/9/09

Total Value Sold

52-Week Change

Copart(NASDAQ:CPRT)

$30.09

$2,447,839

(24.8%)

J. Crew(NYSE:JCG)

$16.25

$39,259,640

(62.3%)

Resources Connection(NASDAQ:RECN)

$16.37

$4,808,716

(10.4%)

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle.

Insiders sell for many reasons, ranging from compensation to estate or tax planning to just plain getting out, but the reasons are rarely (if ever) given. Having said that, these are open market sales, made by executives who have 100% control over the timing of their trades. Not so at NetApp(NASDAQ:NTAP), MetroPCS Communications(NYSE:PCS), and AeroVironment(NASDAQ:AVAV), whose insiders have mostly been cashing in on a predetermined schedule known as a 10b5-1 trading plan.

Companies typically find their way here because those selling either (a) exhibit good timing, or (b) are dumping significant portions of their stakes. Motley Fool Stock Advisor selection Copart has seen both, repeatedly.

This time, it's board member Thomas Smith who was back for another round of selling. Fools may remember that Smith sold a half-million shares over a three-day period in January. He's lightened up some since. Smith parted with just 83,000 shares last week.

This stock has not only a 5-Star rating (as of March 16, 2009) at this website but also an "A" for "Financial Health" from Morningstar.com. I don't imagine many stocks can boast about having both of those things going for them. The fact that neither website (to my knowledge, anyway) is affiliated with any brokerage agency gives me confidence that there is no "pump and dump" scheme going on here.

I can't honestly explain the repeated selling. All I know is that, in a market ripe with cheap stocks, dumping makes me nervous.

An outdated catalog for J. Crew?But even dumping isn't as bad as an everything-must-go blowout. TPG Capital, which bought out J. Crew in 1997 only to bring it public again in 2006, held one of those sales last week.

Specifically, board member James Coulter sold TPG's remaining stake in J. Crew at $14.00 a share. Coulter had last sold shares in September; 2 million shares at $33.45 apiece.

This final sale raises one of two possibilities -- one serious, the other not-so-serious. Either (a) TPG isn't much of a fan of First Lady Michelle Obama and her choice of J. Crew outfits, or (b) TPG's analysts see better opportunities elsewhere.

My guess is "b," as it appears to be the choice for most of the CAPS investors who've rated the stock:

They've good reason. Standard & Poor's recently downgraded J. Crew's credit outlook from "Positive" to "Stable." Practically, this means the retailer would have a harder time selling debt to find expansion.

Peer Gap(NYSE:GPS), which suffered an 8% decline in same-store sales in March, may not be in much better shape. Gap insiders seem to know it, too. John J. Fisher, son of Gap founders Doris and Donald, sold more than $11 million worth of stock recently. Misery loves company, perhaps?

Author

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.